Using Down Payment Gift Money

It's very common nowadays for a first-time home buyers to receive down payment gift money.  Parents are usually the generous ones that will give their children gift money to help them start the home buying process.

The process of accepting a gift for your home down payment is not that difficult, just follow these simple rules, and the underwriter handling your case will surely grant you the loan.

1. Request for a  "Down payment Gift Letter" form from your lender 
The gift letter must be short and simple letter containing the following:

• The relationship between the home buyer and the person giving the gift.
• The amount of the gift.
• The address of the home being purchased.
• A statement that the money is a gift and not a loan that must be paid back.

Instead of downloading a sample from the Internet, request the down payment gift letter from your lender.  You'll never know what the sources might put in the letter from an Internet Download.

2. Prepare documentation
Underwriters will look for where the money came from and where it went.  In short, they want to see the proof that the money came from your parent's account and went directly into yours.

Be ready to provide the paper trail of the money coming out of their account and a proof that it was deposited to your account.  Make sure that it's the exact amount being declared in your "down payment gift letter".

Any discrepancies in the documentation will likely disqualify your use of "gift funds" entirely.

Additionally, if you will use Conventional financing, you will need to invest at least 5% of the purchase price from your own funds unless your total down payment is 20% or more.  If the down is 20% or more, then it can be called as a gift.  On the other hand, FHA does not require any cash from the buyer if down payment gift money is being used.

Most home buyers' have a difficult time coming up with the cash for a home down payment.  By using the cash gift to make a down payment for a mortgage, will give you an advantage in qualifying for a mortgage and get lower interest rate.  If you are lucky enough to receive that kind of help, just make sure you follow the correct guidelines mentioned in this article. For any questions, please don't hesitate to contact me.

The New Mortgage Rules To Protect The Borrowers And The Lenders

The Consumer Financial Protection Bureau announced the "Qualified Mortgage" rule last Thursday, January 10. The new home-lending standards are designed protect the would-be borrowers from mortgages they can't afford and in return, grant the lenders some protection against lawsuits by borrowers who claim they shouldn't have been granted a mortgage in the first place. The new rule will also determine what type of loans can be extended by the banks and to whom. The new rule is a result of the 2010 Dodd-Frank Act, which is meant to help prevent the the return of the lending practices that resulted to the crash of the housing market in 2007-2010.  The new rules will take effect in January of 2014.

The housing crisis was brought about by the banks' willingness to lend without proof of income or without regard to overall indebtedness.

The "Qualified Mortgage" rule states that a borrower's monthly debt service should not exceed 43% of pre-tax income.  This rule will protect the would-be borrowers from the mortgages they can't afford,  For more details, check out this video, http://video.cnbc.com/gallery/?play=1&video=3000140442.  People who make enough money for their daily expenses may have a hard time qualifying for a mortgage..  It means that some people living in high-cost areas will not be able to buy a house of their own.

The upfront fees cannot exceed 3% of the loan.

'Exotic' mortgages like interest-only loans that don't require principal payments, loans carrying balloon payments, loans where principal increases over time and loans with 30-year term will not be considered for the "Qualified Mortgage" rule. (Source: www.forbes.com)

If the loan meets all criteria, lenders won't have to fear a lawsuit from the borrower.

Holden Lewis, a senior mortgage analyst at Bankrate.com predicts that, "Here’s what will change as a result of this rule: The next time there’s a housing boom, this rule will prevent lenders from losing their heads and, in the heat of competition, relaxing lending standards too much."

Debra Still, chairman of the Mortgage Bankers'Association said that, "We believe the rule will effectively block the return of risky product features and inadequate documentation.  If it also provides lenders the certainty needed to originate qualified mortgages broadly across the market to creditworthy borrowers, it will have been a success."

However, the effectiveness of the new rule is yet to be seen.   For the full documentation of the new "Qualified Mortgage" rule, please refer to http://www.housingwire.com/sites/default/files/editorial/201301_cfpb_ability-to-repay-summary%283%29%281%29.pdf

Obama Signs New Bill To Avoid "Fiscal Cliff"

On January 1, both the Senate and House passed H.R. 8 legislation to avert the “fiscal cliff.” The bill was signed into law by President Barack Obama on Jan. 2. (Source: National Association of Realtors). The new bill states that the tax rates would remain the same for most households and the extension of mortgage cancellation relief.

Here is the summary of Real Estate related provisions in the bill: (Source: National Association of Realtors).

• Mortgage Cancellation Relief is extended for one year to Jan. 1, 2014

• Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012

• 15 year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.

• The 10 percent tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.

Anytime a lender cancels, or forgives a debt, that debt is considered as income to the debtor.  Thus, making that income taxable unless an exception applies. Without the extension of Mortgage Cancellation Relief, the debt forgiven will be taxable.

The Mortgage Insurance Premiums are payments for the insurance policy which compensates in case the borrower defaults on a mortgage loan. The deduction for Mortgage Insurance Premiums is considered a tax break and it is applied for mortgage insurance policies issued on or after January 1, 2007.  The deduction is extended through 2013 and made retroactive to cover 2012.

Capital Gains stays at 15% for a maximum of $400,000 (for individuals) and $450,000 (for joint filers). Beyond those amounts, any gains will be taxed at 20%. The $250/$500K exclusion for sale of principal residence remains in place.

The Estate tax will be exempted for the first $5M in individual estates and $10M for family estates.  After that the rate will be at 40%, up from 35%.

The new bill will avert the effects of "fiscal cliff".  Homeowners can still enjoy some of the tax benefits from the previous year.  Although this is a temporary fix, the new bill has put the minds of the Homeowners at ease - at least for this year.

If you have any questions, please don't hesitate to contact me.

FHA's New Loan Limits and Mortgage Standards for 2013

Effective January 1, 2013, FHA (Federal Housing Administration) has raised the loan limits for 1-4 family dwellings. See the new loan limits for Anchorage, Mat-su and Kenai Peninsula area below: 

Area	Single Family	Duplex	Tri-plex	Four-plex
Anchorage & Mat-su	$355,350	$454,900	$549,850	$683,350
Kenai Peninsula	$271,050	$347,000	$419,425	$521,250

FHA has also announced that there will be some changes in the mortgage standards. Included in those changes, borrowers with credit scores between 580 and 620 will face stricter limits on their debt-to-income ratio.  The planned changes are to be enforced in order to avoid a bailout brought about by the $16.3 billion deficit for the 2012 fiscal year.

FHA will soon require a minimum down payment of 5% for high-cost mortgages that exceed $625,500 instead of the usual LOW 3.5% down payment.

The Wall Street Journal reports that FHA will be replacing it's popular reverse-mortgage option with the Home Equity Conversion Mortgage (HECM) saver which enables older homeowners to withdraw some of the equity in their home in the form of monthly payments for life or a fixed term, or in a lump sum, or through a line of credit.  Furthermore, the HECM mortgage can be used to purchase a primary home when the borrower is 62 years of age or older and is able to use cash in hand, money from the sale of assets or money from an allowable FHA funding source to pay the difference between the reverse mortgage and the sales price plus closing costs for the property. (Source: www.hud.gov)

Next year, FHA also plans to raise the annual insurance premium paid by borrowers.

Without the plans, the agency may require a taxpayer bailout next year for the first time in its 78-year history.  There will be more programs that will be put in place to avoid the bailout.

For more information, please don't hesitate to contact me.